Two Fifth Avenue had 30 days to close the sale of a lifetime –
if the board could come up with $30 million.
One co-op’s amazing story.
Bill Morris, a freelance writer, has written for the Daily News.
On a flawless day in the fall of 2004, attorney Elliott Meisel, 59, a partner at Brill & Meisel, was sitting in his midtown Manhattan office admiring the view across 51st Street. There, soaring toward the heavens, were the twin spires of St. Patrick’s Cathedral, and all that dazzling stained glass – those gorgeously gnarly gargoyles.
Meisel’s reverie was interrupted by the ringing of his telephone. To this day, he describes the call as “frightening.” It came from Adelaide Polsinelli, president of the co-op board at Two Fifth Avenue, a building with 350 apartments that Meisel had represented since shortly after its conversion in 1986. Polsinelli was calling with a tantalizing opportunity and a daunting challenge.
As Meisel knew so well, Two Fifth Avenue, looming over the arch at Washington Square Park, was one of the city’s premier addresses. It was also one of just 300 “leaseholds” among the city’s 7,000 co-ops, meaning the occupants did not own the land the building sat on. Ownership was still in the hands of the Rudin family, who had built the property in 1952 and had owned it until 1986. Ever since then, the family had resisted the co-op’s periodic attempts to buy.
Now, an excited Polsinelli told Meisel the Rudins were finally willing to sell. But there were a couple of major hurdles to clear. The price was stiff: $30 million. And the family was giving the co-op just 30 days to sign a contract before offering the land for public sale.
“It was pretty frightening,” Meisel recalls. “Not just because it was a very small-time window or because of the dollars involved but because the board has a responsibility to all residents of the building. I felt I had a lot of people’s lives in my hands.”
Deal Me In?
Any time there are a lot of New Yorkers involved in a high-profile, high-dollar real estate transaction, there are going to be differences of opinion. This deal was not destined to be an exception.
There were compelling reasons for buying the land. The rent was scheduled to jump by 30 percent in 2006, with yearly increases of 4 percent compounded after that. A rule of thumb among brokers is that a co-op’s value increases by at least 15 percent if the occupants own the building and the land it sits on. While 36 percent of the monthly maintenance on a “lease-hold” is tax-deductible, the figure soars to 60 percent if the co-op owns the land. And while interest payments on a mortgage are tax-deductible, rent payments are not. Besides, as Polsinelli puts it, owning a building but not the land is “like having a teapot without a top.” In her mind, there was no doubt that buying was the right thing to do.
There were also compelling reasons for not doing it, and more than a few of the board’s nine members were skeptical. They thought the $30 million price tag was too high; they questioned the wisdom of taking out a mortgage that would probably outlive some of them; and they felt they were being put under the gun by the Rudin family’s 30-day window of opportunity. Above all, they didn’t like the idea that their monthly maintenance would have to rise by roughly 15 percent to finance the new debt.
It was a time for firm but delicate leadership, and Polsinelli – a Greenwich Village native, a commercial real estate broker with Besen & Associates, and a bubbling volcano of energy – eagerly rose to the challenge.
Her initial call was to Thomas Marcosson, the board’s first president, who had tried repeatedly during his 13-year tenure to persuade the Rudins to sell. Even though he no longer lived in the building, Marcosson, 70, was thrilled by the news and offered his considerable expertise as an accountant, free of charge. “Oh my God, I never thought I’d see the day!” he told Polsinelli. “I’m there for you.”
Polsinelli’s next call was to Candy Chusid, a consultant whom she regards as a “genius” in co-op financing issues. Once Elliott Meisel was up to speed, it was time to present the sale offer to the board.
That’s when the trouble began.
The broker in Polsinelli regarded the case as a “slam dunk.” The price, though high, was more than fair in today’s market. (The Rudin family members still own a 22-percent share of the co-op, she notes, making it unlikely they would try to gouge themselves by artificially inflating the price.) Shareholders would actually wind up saving a considerable amount of out-of-pocket money every year. And their property would increase in value – dramatically – before the ink on the contract was dry.
But to Polsinelli’s amazement and dismay, the board didn’t see it that way. It had recently been expanded from seven members to nine, and Polsinelli was one of just two real estate professionals on the board. The other seven – designers, lawyers, accountants, financial analysts – were not convinced they should pursue the sale. They hit the brakes.
“Whoa,” Polsinelli remembers them saying when she and her team pressed for quick approval of the purchase. “You’re going too fast for us.”
The clock, meanwhile, was ticking.
As the board was waffling, Meisel, whose firm represents more than 100 co-op boards in the city, had rolled up his sleeves and gone to work. He reached out to a dozen lending institutions while Polsinelli contacted about half as many on her own, people she knew from experience to be “miracle-workers.” Their goal was to find someone who could put together a complex loan package that would accomplish three things.
First, they wanted to get an unsecured “bridge loan” of $3 million that would enable the co-op to make a downpayment while locking in a favorable mortgage rate and demonstrating its “good faith” to the Rudins. Second, they wanted a long-term $31 million mortgage at a fixed rate for the purchase of the land and closing costs. And third, they wanted to establish a $2 million line of credit so the co-op would have money available for unforeseen capital improvements and wouldn’t be forced to refinance the mortgage in order to raise cash.
One after another, the bankers turned them down. “Even those lenders who might have been able to give us a good rate on the bridge loan couldn’t do the mortgage or the line of credit,” Meisel says. In the end, only a couple of lenders looked viable.
Then Meisel called Sheldon Gartenstein, senior vice president at the National Cooperative Bank (NCB). At first, Gartenstein was taken aback by the prospect of putting together a complicated loan package of more than $30 million in less than 30 days. But when he heard three magical words – “Two Fifth Avenue” – everything fell into place.
“After realizing which building it was for,” Gartenstein recalls, “I knew we could do it. For us, it was a no-brainer. The only issue was how quickly we could do it.”
NCB beat the clock, agreeing to provide the bridge loan, the line of credit, and a 10-year mortgage for $31 million at a locked-in rate of 5.24 percent. Part of the reason it was so simple was because the National Cooperative Bank is a different breed of animal from huge publicly held lenders. Formed by an act of Congress in 1978, NCB was designed to serve cooperative enterprises of all kinds. In New York City, it focuses almost exclusively on real estate and now handles roughly one-third of all co-op transactions in the city, according to Gartenstein.
One advantage NCB has over commercial banks is that it’s a non-profit operation; any profits are redistributed to its shareholders, namely the co-op borrowers. Another advantage is that its charter exempts NCB’s debt from 2.75 percent state and local taxes on loans, known as the mortgage recording tax. In the case of Two Fifth Avenue, this alone would amount to a saving of about $800,000.
“I think the thing that made the deal happen was our ability to do all three things, and do them within a very tight time frame,” Gartenstein says. “There was no hesitation on our part. Other lenders can’t say the same thing. Unlike a big bank, this is all we do.”
Though buoyed by NCB’s decision, Polsinelli could see that her “slam dunk” was still in danger of turning into an air ball. She realized that the board members, most of whom had only a few months’ experience on the job, had to be educated on how to do a deal of this magnitude. So she started calling meetings. Marcosson contributed spreadsheets that graphically spelled out the financial advantages of owning the land. Meisel explained the structure of the NCB loan package. The Rudins’ broker came in and laid out the family’s plans for a public sale if the co-op didn’t step up within 30 days. Chusid offered her informal guidance. And at the board’s insistence, broker Brian Corcoran of Cushman & Wakefield was hired to offer an impartial assessment of the deal.
Their advice was unanimous: buy the land.
While Polsinelli sensed that she was winning the board over, she wasn’t satisfied just yet. Under the co-op’s charter, the board didn’t need shareholder approval to do the deal; but she wasn’t going to settle for anything less than unanimity among the board members.
“We wanted a united front,” she says. “We were not going to do this with a split board. My job was to get the whole board to be 100 percent in favor of this.”
And so she called a shareholder meeting in a conference room at New York University. More than 200 of the building’s residents showed up, an unprecedented turnout. Polsinelli was worried that there would be a groundswell of resistance to the deal, but to her relief, it failed to materialize. Quite the contrary.
“The shareholders wanted the land purchase,” she says. “Their only concern, amazingly enough, was with the terms of the financing. After that meeting, the board started to realize there was no resistance from the shareholders.”
And when the sale price actually came down slightly, to $29.25 million, the deal was done.
Once the contracts were signed and the co-op became the owner of the land, it was time to celebrate with champagne and white balloons. After the party, it was also time to review the lessons learned from the experience.
Lesson number one, everyone involved agreed, was that the flexibility and hard work of the National Cooperative Bank were crucial to the deal’s success. “NCB was willing to work overtime to get this done and meet the deadline,” Polsinelli says, noting that the bank was able to come up with the crucial $3 million bridge loan in just five days. She says it would be unthinkable for a big bank, bogged down by committees, to move so nimbly.
Flexibility is one of the virtues of being small, according to veteran residential mortgage broker Melissa Cohn of Manhattan Mortgage Company, who has had many dealings with NCB over the past 20 years. “This is their niche, and therefore they have the capacity to move more quickly than bigger banks,” she notes. “There’s no learning curve for them because this is what they do. They’re a small bank, but they have the capacity to move mountains when they have to.”
Another lesson is that when opinions are so sharply divided, the advice of impartial outside professionals should be solicited and then heeded. “You need to seek out the appropriate professionals and hire them,” Polsinelli says. “It wasn’t enough for me to think it was a good decision to buy the land. I had to go to the outside world for validation. You can’t argue with impartial professionals.”
A third lesson is that while a co-op’s board and its president don’t always have to agree, they must have a good working relationship that’s built on communication and trust. In his two decades of helping finance co-ops, Gartenstein has dealt with all sorts of boards and all sorts of presidents.
“Boards vary,” he said. “Some can’t be galvanized into action, while others are hyperactive to a fault.” Gartenstein is unstinting in his praise for its president. “Adelaide Polsinelli is a very dynamic woman,” he says. “She was very helpful in getting the co-op on board. She had to be the advocate who induced the board of directors to agree to the purchase. I think she put the fear of God into them that they could not afford to lose the opportunity to buy that land.”
Meisel agrees. “Adelaide is a very strong and energetic leader. She put the pressure on without being abrasive. She did an excellent job of moving things along and getting things done without ruffling a lot of feathers.”
Marcosson, who had tried unsuccessfully to wrest the land from the Rudins several times during his long tenure as president, adds: “Adelaide, finally, is a very good businesswoman. Building a consensus with people is a difficult and time-consuming task. Everything gets questioned, and you’ve just got to keep going, which she did. She bore the brunt of muscling this thing through, and she got it done with good financing and a minimum of disruption. She got rid of uncertainties about the future of the rent. Now, the shareholders control their own destiny.”
Polsinelli, in turn, credits the stabilizing influence of Marcosson, whose experience and passion for the sale made him an invaluable ally. “He was the person who enabled me to convince the hold-outs on the board that the purchase was the right thing to do,” Polsinelli says.
Which is not to say there were no ruffled feathers or hard feelings. “I lost a lot of hair and went through a lot of sleepless nights,” Polsinelli says of a process that had looked so disarmingly simple at the outset but turned out to be anything but. “My three sons were ignored. It got ugly.”
But the positive memories now outweigh the negative ones. “We have a lot of good feelings in the building now,” she notes. “People have been coming up to me ever since the sale went through and thanking me. That’s a warm feeling.”
Along the bumpy road to that point, she learned some things that she believes could be of use to other co-op boards and other presidents in the city. For starters, the board has reverted to its original seven-member format. Nine members, it was agreed, simply made things unwieldy. But Polsinelli learned that, for a board president, controlling emotions is far more important than manipulating numbers.
“You need to separate your personal feelings and your emotions from what’s good for the whole group,” she concludes. “That’s not always easy to do. It’s not about me; it’s about what I can do for the building. Did I make this building a better place to live? In the end, I believe I did.”